Lubricant and base oil demand declined by 7 to 11 percent in 2009, Ames said, and possibly more, following a 2.7 percent decline in 2008. Four to five million tons per year of lube demand has been taken away since 2007.

Base oils have been impacted by declining margins of refineries fuels operations. Crude slates have changed, runs cut, processes and whole refineries have been idled, Ames said. Base oil refineries operated at about 70 percent of capacity globally in 2009, not a healthy rate.

Sales & Closures
Seven refineries with 2.5 million t/y of base oil capacity were on the block in 2009, Ames continued. Some may be sold, others could close. One base oil refinery closed last year, while three additional closures for 2010-2011 were announced.

– Sunocos Tulsa, Okla., refinery was sold to Holly Corp., along with Sinclairs. The marriage of the two refineries should help keep the former Sunoco 490,000 t/y API Group I plant operating.
– Agips Livorno, Italy, 550,000 t/y Group I refinery was put up for sale in February 2009, but no acceptable offers were received and it was taken off the market in February 2010.
– Six Shell refineries were put on sale in 2009, three with base oil plants: Harburg, Germany (180,000 t/y Group I, 150,000 t/y naphthenics); Stanlow, U.K. (230,000 t/y Group I); and Montreal East, Canada (140,000 t/y Group I). The Montreal East facility did not sell and will be closed by the end of 2011 and converted to a fuels terminal.
– Frances Colas agreed to buy the 330,000 t/y Group I Dunkerque base oil refinery from ExxonMobil and Total in early 2009. Colas is to operate it as a bitumen plant. The deal is to finalize in mid-2010, with possible base oil takeoff agreements.
– Valeros Paulsboro, N.J., refinery, with a 590,000 t/y Group I plant, went up for sale in January 2010.
-Puralube closed its 80,000 t/y Group I rerefinery in Duisberg, Germany, in January 2009; its feed was redirected to Puralubes new plant at Zeitz.
-Caltex Kurnell in Australia will close its 180,000 t/y Group I plant by the end of 2011.
– ExxonMobil subsidiary Imperial Oil will close the 330,000 t/y Group I/II Sarnia, Canada, base oil plant by early 2011.

Mergers and acquisitions were quite active in 2009, Ames continued, although some of the players are changing. Nippon Oil in Japan merged with Nippon Mining to form JX Holding, with a possible impact on base oil production, and it purchased Sankyo Yuka Kogyo and its 95,000 t/y naphthenic plant in Ichihara, Chiba, Japan.

Suncor purchased Petro-Canada and its Group II/III Mississauga, Ontario, base oil plant. IPIC of Abu Dhabi purchased Banco Santanders share of Spanish refiner Cepsa and its Group I plant. OMV sold its stake in Hungarys MOL, which has a Group I plant, to Surgutneftgas. And LukOil bought Dow Chemicals 45 percent share of the Netherlands refinery, operated by Total, that provides hydrowax feedstock to Group II/III base oil operations around the world.

New Capacity
More than 1.5 million t/y of additional base oil capacity streamed in 2009, said Ames, including 750,000 from new greenfields, 750,000 t/y from expansions and 60,000 t/y from a restart.

– Formosa Petrochemical in Taiwan streamed its 500,000 t/y Group II plant in September 2009.
– Albemarle began production of 15,000 t/y of high viscosity PAOs for ExxonMobil Chemical in November.
– Two rerefiners in Europe, Puralube in Germany and L&T Recoil in Finland, and two in the U.S., Heartland and Universal Lubricants, streamed a total of 235,000 t/y of Group II or higher products.
– Ergon expanded its Vicksburg, Miss., naphthenics refinery by 400,000 t/y, bringing total capacity to 1 million t/y.
– GS Caltex debottlenecked its Group II/III Yeosu, Korea, plant by 300,000 t/y, increasing capacity to 1.15 million t/y.
– Neste and Ineos both expanded low vis PAO capacity at their plants in Belgium.
– Refinerija ulja Modrica in Bosnia Herzgovina restarted its 60,000 t/y Group II/III plant in February 2009 after an 11 year shutdown.

Despite the difficult times and poor economics, Ames said, more than 2.4 million t/y of future additions were announced during 2009.

– Sinopec in Yanshan, China, 250,000 to 350,000 t/y of Group II/III in 2011.
– PetroChina in Dalian, China, 300,000 t/y of Group II/III in 2011.
– SK, 500,000 t/y Group III each in separate European and Asian jvs, in 2012 and 2014.
– PdVSA, Venezuela, 40,000 t/y rerefined Group II in 2011.
– Puralube, 80,000 t/y rerefined Group II+ in Norway in 2010, and possibly 80,000 t/y in China.
– Future expansion announcements include S-Oil in Korea (unspecified additional Group III in 2010), Nynas in Sweden (400,000 t/y naphthenic), and SK in both Korea and Indonesia (225,000 t/y Group III total).

Not everything went as planned in 2009. Ames noted that a number of previously announced projects have been delayed or canceled, and one – the 400,000 t/y Group III Bahrain Lube Base Oil Co. plant – has advanced and is scheduled to stream in September 2011.

Looking forward, Ames said that fully a quarter of base oil capacity remains idle, far above the 10 to 15 percent historical average. Base oil refining will be no picnic in 2010, he noted. There will be no snap-back in base oil demand to 2007s peak of about 37 million t/y. More likely is a slower climb, from 2009s depressed demand of 32 million t/y, to about 35.5 million t/y by 2014.

Most base oil plants are integrated within larger fuels refineries, and while some have large impacts on overall operations, all are dependent upon the health of the mother ship, Ames concluded. They say that 2 million barrels per day of total refining capacity needs to close, and stay closed, in the Atlantic Basin over the near term for margins to improve.

Consequently, said Ames, base oil plants in the least efficient Atlantic Basin fuels refineries are at the greatest risk of closure, for non-base oil related reasons. Ames anticipates those closures sooner rather than later.